2015 (9) TMI 1418 - AT - Income Tax

Disallowance of business loss - Revenue s basic thrust of the arguments is that since the loss is not incurred in the course of business carried on by the assessee, it should not be allowed as a deduction - CIT(A) allowed the claim - Held that - It is an undisputed position that the assessee did in fact trade in processed agricultural produce, in connection with which advances in question were made, and it was in the course of this trading that business loss of making unrecoverable advances was incurred. The losses were thus wholly incidental to the business carried on by the assessee. There may not be any trading transactions of these products in the current year but the business of the assessee has not come to a halt. No doubt, criminal complaint filed by the assessee had not reached finality and the persons, who allegedly and fraudulently obtained these advances, were on bail given by Hon ble High Court, the remote possibilities of recovery did not take away assessee s right to claim reasonably foreseeable business loss. Learned CIT(A) has given categorical and detailed findings about these advances having become actually bad and these findings remain uncontroverted As regards learned CIT(A) s having confirmed the disallowance of business loss in respect of monies unrecoverable from Quality Foods (Rs.7,12,500) and S.N. Das Freight Forwarders Pvt. Ltd. (Rs.2,99,387), the assessee could not bring on record any material, to establish the fact of loss, before us either. Learned Counsel for the assessee has made elaborate arguments on admissibility of such losses but, in the absence of sufficient material to establish the fact of the alleged loss, we are not swayed by these arguments. We, therefore, confirm the stand of the ld. CIT(A) on this aspect as well.

Summary

Issues involved:
- Disallowance of bad debts/trading loss by CIT(A)
- Deletion of disallowance by Assessing Officer
- Admission of additional evidences by CIT(A)
- Disallowance of business loss by CIT(A)

Disallowance of bad debts/trading loss by CIT(A):
The appeals were against the order passed by the CIT(A) upholding the disallowance of Rs. 10,11,887 made by the Assessing Officer (AO) for the assessment year 2008-09 under section 143(3) of the Income Tax Act, 1961. The assessee contended that the disallowance was illegal and against natural justice, and the CIT(A) erred in not fully considering the submissions and evidence regarding the additions. The CIT(A) confirmed the disallowance of the claim of bad debts/trading loss for various entities, leading to grievances raised by both the assessee and the Assessing Officer.

Deletion of disallowance by Assessing Officer:
The Assessing Officer disallowed a significant amount claimed by the assessee as bad debts/trading loss, stating that the claim was not incidental to the regular business activity and that certain advances could not be treated as bad debts. The AO also noted that some amounts were trade advances for purchases and not bad debts. The CIT(A) allowed the claim as a business loss, considering the transactions were not disputed and losses were actually incurred. The CIT(A) upheld the disallowance in some cases where the assessee failed to establish the amounts had become unrecoverable.

Admission of additional evidences by CIT(A):
The Assessing Officer objected to the admission of additional evidences by the CIT(A) that were not produced during the assessment proceedings. The AO argued that these evidences were not covered under the exemption provided in the IT Rules. However, the CIT(A) admitted the additional evidences and considered them in reaching the decision regarding the disallowance of bad debts/trading loss.

Disallowance of business loss by CIT(A):
The CIT(A) confirmed the disallowance of business loss in respect of amounts due from Quality Foods and S.N. Das Freight Forwarders Pvt. Ltd., stating that the assessee failed to establish that these amounts had actually become unrecoverable. The parties were dissatisfied with the CIT(A)'s decisions, leading to both the assessee and the Assessing Officer appealing the matter. The Tribunal confirmed the relief granted by the CIT(A) in some instances but upheld the disallowance in others where the alleged losses were not sufficiently proven.

This detailed analysis of the judgment highlights the issues involved, the contentions of the parties, the decisions made by the CIT(A) and the Assessing Officer, and the final decision of the Tribunal on each issue.